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Stricter penalties and moderate excise to stem highly profitable tide of illegal cigarettes


PETALING JAYA, 10 September 2009 – The recent announcement by the Royal Malaysian Customs (RMC) on illicit cigarette trade reaching a record 36.7% of the country’s total cigarette industry has made the legal industry’s plea to the Government for more concrete measures to address the explosive growth of illicit cigarettes even more urgent. Over 80% of the 36.7% illegal cigarettes are found in Peninsular Malaysia. From less than a year ago, where of 1 out of 4 cigarette packs in Malaysia are illegal contrabands, the situation has worsened into more than 1 out of every 3 packs today.

“Illegal cigarettes are fast becoming the largest player in the total cigarette market in Malaysia. Legal manufacturers have lost a significant 11% in legal volumes during the first half of this year to illegal operators. Almost all illegal cigarettes in the country are contraband or smuggled cigarettes and fortunately there are hardly any counterfeit cigarettes in our market. Contraband cigarettes are where the profits are because organised crime syndicates have chosen to exploit the large price differentials between legal cigarettes in Malaysia and other neighbouring countries” said Jack Bowles, Managing Director, British American Tobacco Malaysia.

Many people may see this illicit cigarette problem as only impacting the legal industry. However, the ramifications go beyond that. The Government too is impacted because it is estimated to lose approximately RM1.5 billion a year in unpaid taxes, which if collected would go a long way to better benefit the people. This problem is not unique to Malaysia. Organised crime cuts across borders. Some estimate that more than USD40billion in tax revenue is lost by governments worldwide each year and these tax losses are higher than the GDP of many countries.

“We foresee that this illegal cigarette trade will continue to grow and will very soon become the largest player in the Malaysian cigarette industry if serious efforts are not made to combat it. In order not to further fuel illicit growth of cigarettes, we hope that the Government will seriously consider implementing a moderate and gradual excise regime. It is proven that excise increases have a direct correlation to increases in illegal cigarette trade and this can be clearly seen in Singapore and Hong Kong. The cigarette industry has seen excise increases every year since 2002 and the excise increases in the last two years alone accounted for 50% of that increase. It appears that the annual and large excise increases have caused the tobacco industry to reach a tipping point, accelerating the growth of smuggled cigarettes at the expense of the legal industry, with no change to overall consumption.” said Bowles.

The impact of illegal cigarettes goes further than just lost revenue. It is also a magnet for organised crime where the crime syndicates use these profits to finance their activities. The stakes are high for smugglers and retailers alike as the lucrative profits offer a strong financial incentive to continue or even expand in this illegal business. Monetary fines alone are not enough of a deterrent when there is so much money to be made illegally. It is perhaps time for the Government to consider stricter and more severe penalties to discourage smugglers, wholesalers, retailers and even consumers for creating the demand for and supply of illegal cigarettes.

According to an article in Borneo Post, a RMC spokesperson mentioned that apart from loss of revenue, smuggled cigarettes also posed a greater risk to smokers as they contain higher levels of nicotine as well as dangerous unknown compounds. Another article reported by Bernama stated that illicit cigarettes contained foreign matter like rat poison, wood dust and glass splinters.

Bowles further added that, “This pressing situation of illegal cigarettes would have been far worse if not for the tireless and commendable efforts of the enforcement agencies, in particular the Royal Malaysian Customs in curbing the illegal cigarette menace. In fact, seizures of illegal cigarettes have increased by 76% in the first quarter of 2009 against the first quarter of 2008. We are also gratified to see that there are other enforcement agencies like the Marine Police, Malaysian Maritime Enforcement Agency, Royal Malaysian Police, and also the enforcement arm of the Ministry of Domestic Trade, Co-operatives and Consumerism, who have joined the fight against this ever increasing menace. However, because of the growing size of this problem caused by the widening price gap between legal and illegal cigarettes, the enforcement authorities are fighting an uphill battle.”

We do believe that a moderate excise increase this coming Budget 2010 coupled with increased enforcement, more severe penalties and more awareness of the dangers of trade in illicit cigarettes will help curb this menace.”

About British American Tobacco (Malaysia) Berhad

British American Tobacco (Malaysia) Berhad (British American Tobacco Malaysia) emerged on 3rd November 1999 from the merger of Rothmans of Pall Mall (Malaysia) Berhad and Malaysian Tobacco Company Berhad. These two long established tobacco companies brought with the merger, experience and an unrivalled portfolio of highly successful international brands to create the largest tobacco company in the country.

British American Tobacco Malaysia manufactures and markets high quality tobacco products designed to meet diverse consumer preferences. Brand portfolio includes well-established international names like Dunhill, Kent and Pall Mall. British American Tobacco Malaysia has about 2,000 employees who are involved in the full spectrum of the tobacco industry, from leaf buying and processing to manufacturing, marketing and distribution.

British American Tobacco Malaysia is part of the British American Tobacco group, which is the world’s most international tobacco group and the second largest stock market listed tobacco group by global market share.

For more information, please contact British American Tobacco Malaysia: